Sticky Situation

[gbnico]

Hello All,
I've found myself in a very sticky situation and would appreciate any help and advice.

I invested in a friends company when he was chasing his dream, as did another friend of mine too.
My friend was passionate about his product and had a vision of exactly what he wanted to do with the business. He is a qualified accountant by trade and had all the figures and financial business plan down.

After long discussions we decided to invest in our friend. Mainly because he was firstly an accountant and the figures would come natural to him.

15 months into the business and he has been a complete nightmare.
He's never up to date with figures and never shares them with directors.
Even after constant emails and trying to contact him there's no reply and obviously that is a massive worry.

We had no idea of any financial problems until bailiffs came in and began counting assets to cease if the rent which was 3 months overdue wasn't paid.

Myself and the other director are constantly trying to get information and nothing is coming back. We can't get him to even engage us anymore, infact his last full email threatened the other director of harassment and threatened to call the Police if we kept trying to contact him.

Our names are on business loans and the premises lease as guarantors and we are getting nothing from this guy. We are also owed thousands of pounds in personal loans we were conned out of while awaiting the above loans to appear. These personal loans have not been paid a penny in over a year,

What is the next step you recommend? This whole situation has been a complete disaster, we invested in our friends dream and as a qualified accountant we dumbly put our trust in him.

What are we to do when the MD is also the Accountant and refuses to reply or contact us?

 

[Free Lance]

Some questions before anyone can properly respond.

Is the business run through a limited company??

Are you shareholders or did you just lend the investment money.? If you're shareholders, what percentage do you own? What percentage is on the paperwork at Companies House?

Do you have any shareholders agreement?

Answers to those will help the responses.

 

[gbnico]

Thanks.
Yes Limited company.
We own 50% of the shares between us. The other 50% is the other Director and his family.
No shareholder agreement as I am aware.

 

[gbnico]

I believe companies house share holding is wrong at the minute. It shows the MD hold 60% and us 40% but this was changed when the business needed bailing out in the build/construction stage.

 

[BRITWALES_UK_GCC]

MD probably did not change those details of 60/40.

 

[The Resolver]

He is legally obliged to share all information with you as directors. You need to put this in writing to him quoting the law. Allowing a situation to escalate to a visit from the bailiffs may indicate he is also in breach of other directors duties such as would involve him in personal liability to compensate the company fir any losses in business/business value that may as a result, be sustained.
Consider whether these events are the result of a devious mind, incompetence or someone with personal problems he has not been able to share with you.

Identify the pressure points to help encourage him to agreeing a solution. As an accountant (chartered or certified or other) he will be a member of a professional body and , as such, be obliged to follow ethical rules and standards. A formal complaint to the professional body could have significant consequences for him which he would be a fool to risk.

You should also initiate communications direct with his family members who own shares . After all you as directors owe duties to them as part owners of the company to protect the company. Don't assume they will always be loyal to him with their votes. Start from the most charitable explanation. He may have personal issues and an approach that demonstrates concern for his well being or such like may encourage some support from them that could reflect in voting in support of a Resolution eg to remove him from the Board – which after all will be in the financial interests of all shareholders). If its his wife who has the shares and they have split up – maybe this is the personal issue- she may well welcome your approach. Even if she is loyal, or its parents who own the shares, the right tone of approach may become a very significant game changer.

You also then need to call a Board Meeting and raise the concerns on record. One issue is to consider also his position as employee. If the Board is made up if the three of you, then you can vote a Board decision to initiate a disciplinary procedure (setting out the reasons) with a view to potentially making a decision to sack him from employment as MD. If the grounds are good, and it seems so from what you say, and you follow a fair procedure then you can achieve his dismissal without giving him a right to claim compensation through the Tribunal. You should also vote in favour of a decision to remove him from the Bank authority. Now of course I know too little to know what would be the impact and whether that would mean finding a replacement to run the company but there are half way stages in which he remains as a senior manager doing the work but with some other person, yourself, taking on a supervisory role.

You should also call a General Meeting of shareholders – perhaps with 28 days notice of intention to remove him from the Board. Even if you cannot muster a majority vote, simply raising the issues in a formal way will be helpful in generating real discussions.

Your taking formal action under company rules like this will shake him out of any thought they he is in control and that you are ignorant of the law. PM or call me (07885 728801) if you wish me to draw up the letters and notices quoting the law etc and generally advise in detail of the strategy to adopt and steps to follow.